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RULES FOR FORM 1099’s (some are new so please review)

If you need assistance in preparing 1099’s, please contact my office ASAP so we can prepare the forms by the filing deadline. If you are going to prepare your own, order your Form 1099-Misc & 1096 since the post office and IRS offices do not carry them.

WHAT IS A FORM 1099? - A Form 1099 is a tax form used by business owners to record and report specific types payments made to independent contractors or freelancers. It also reports rents, interest, royalties, and prizes. One copy goes to the IRS and one copy goes to the independent contractor.

WHEN IS A FORM 1099 ISSUED? - If you run a business or are self-employed, and pay more than $600 PER YEAR for services, rents, or prizes to any individual, partnership, or LLC, you need to issue a Form 1099.

You do NOT issue a Form 1099 to a Corporation UNLESS the payments are for medical services, health care, or legal fees. You will need a SIGNED Form W-9 from your vendors so you have their correct address, social security number, business ID number, and business entity type. If your contractors don’t fill out a Form W-9, they should not get paid. Start this policy immediately. Get the W-9 for your 2011 vendors. You will need them by January 31st.

WHEN IS DEADLINE FOR FILING?

January 31st – your contractor or freelancer gets Copy B of Form 1099-MISC

February 28th – copy B of Form 1099 is sent to the IRS with a transmittal sheet called Form 1096.

WHAT ARE PENALTIES FOR NOT FILING?

The following penalty applies if your fail to file timely (Jan 31st and Feb 28th)

o $30 per Form 1099 filed within 30 days

o $60 per Form 1099 filed more than 30 days but before August 1

o $100 per Form 1099 filed after August 1

o $250 per Form for intentional failure to file

o The maximum penalty for a small business is $500,000.

The same penalty applies if you don’t have all the information or 1099 is sloppy such as

o The form are not machine readable. Handwritten is frowned upon. Use block print, not script. .

o Do not enter 0 (zero) or the word “None” in money amount boxes. Leave the box blank.

o You don’t use the correct TIN (Taxpayer Id Number) on each form. (This is why you need Form W-9)

o You don’t put enough information so the IRS can figure out the correct name. Put the individual’s name first and the “doing business as” second. For example, list “Larry Willard” dba “Willard and Sons Construction.”

o You round off the figures to the closest dollar. The IRS wants to see the pennies!

o You used include incorrect symbols. For example # signs are not allowed. Enter the address as STE 12, not Ste #12. Do not use dollar signs ($), ampersands (&) asterisks (*) or commas (,) or apostrophe’s ANYWHERE.

EVEN MORE IMPORTANT, the IRS issues this caution: "If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty." [IRS and California Labor Workforce Develop. Agency penalties are $25,000 and $5,000 to $15,000, respectively, for each misclassified person]. There could also be problems with state agencies like the Employment Development Department, the Division of Worker’s Compensation, or the Labor Commissioner. These agencies can impose fines against employers who wrongfully classify employees as independent contractors.

WHO IS AN INDEPENDENT CONTRACTOR?

An Independent Contractor is a person or a company that you contract with to do specific projects or consulting. They provide a specialized expertise only when you needed it. They know their stuff. You don’t have to train them. Many will have a specialized license. They do NOT work under your control and they use their own equipment.

A few examples of some likely independent contractors:

o Attorneys

o Accountants, Bookkeepers

o Graphic/ Web Designers

o Computer Techs

o Engineers

o Janitorial Services

o Landscape Maintenance

o Mechanics

o Installers

o Prizes & Awards

o Landlords (RENTS)

o Management Consultants

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